Japan current-account surplus grows, but bank lending slips

TOKYO (MarketWatch) -- Japanese economic data painted a mixed picture Tuesday, as the current-account surplus grew more than expected in November, boding well for an export-led recovery, but bank lending marked its first year-on-year drop in nearly four years, suggesting deflation could be sapping demand for funds.

The balance of most Japanese banks' outstanding loans dropped 1.2% in December from the same month a year earlier, the first such fall since January 2006, according to Bank of Japan data released Tuesday.

When the total balance figure includes loans extended by small cooperative financial institutions, the on-year fall was 1.0%.

"This reflected a weakness in demand for bank credit, both due to a sluggish economic recovery, as well as a return to more normal credit conditions since mid-2009 that has allowed some borrowers to return to the debt market, after having turned to banks to satisfy financing needs when markets had frozen at the height of the financial crisis," wrote analysts at Action Economics.

Japanese corporate capital investment has been under pressure from deflation, which inflates the value of debt and makes borrowing funds less appealing.

"The weak growth in bank credit likely also reflected banks exercising restraint in the face of their own balance-sheet woes, although they have generally been able to bolster their capital position via equity issues in recent quarters as the market rebounded," the analysts said.

Japanese banks are gearing up to issue more shares ahead of more stringent international guidelines on how much core Tier 1 capital they must hold. The latest issuance announcement came earlier this month from Sumitomo Mitsui Financial Group Inc. (8316)
SMFG, +0.24%
the country's third-largest lender, which said it will raise 800 billion yen ($8.7 billion) by issuing new shares. See full story on Sumitomo Mitsui's share-offer plan.

Current account beats

Separate data Tuesday from Japan's Ministry of Finance showed the nation's current-account surplus grew 76.9% in November compared to the same month last year, to 1.103 trillion yen ($11.9 billion) before seasonal adjustment.

Economists polled by Dow Jones Newswires and the Nikkei had expected a current-account surplus gain in the month of 65% to 1.029 trillion yen.

Exports fell 7% to 4.704 trillion yen, while imports fell 18.2% to 4.214 trillion yen, according to the data.

This resulted in a trade surplus of 491 billion yen, narrower than the 949 billion-yen trade surplus reported for October.

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